The timing could not be more opportune. Brokers and investment bankers see little downside in cyclical stocks, while they feel that software, pharma and FMCG have lost steam temporarily. With the lead provided by recovery in aluminium prices and smart rally in these stocks, there is hope that global commodity prices could see a turnaround.

Says Vinay Bajpai of Khandwala Securities, "Investors also see some level of saturation in software. Given the fact that the earnings from products developed for Y2K compliance would not feature in the next year's charts, most of the software companies will find it difficult to sustain their profits. In FMCG and pharma also there is a considerable degree of discounting."

A research analyst with an FII also sees a slow down in the software industry, especially those companiesfocussed too much on Y2K-compliance products. "Cyclical stocks are quoting at their lowest ebb and look attractive in the light of the recovery witnessed by commodities all over the world. Nasdaq has also witnessed substantial recovery in cyclical stocks, so should India," said the analyst. DSP Merrill Lynch AMC chief investment officer S Naganath plans to invest half of the mobilisations of the balanced schemes in cyclical stocks and 25 per cent in information technology, pharmaceutical and FMCG. "There are improved signs of recovery in the economy with improved offtake in the cement and automobile sectors.''

The latest data on industrial growth may not be encouraging. But a closer look shows that the capital-goods sector is picking up. For instance, though the overall industrial growth for the first eleven months of last fiscal was 3.9 per cent compared to 6.9 per cent, the capital good sector recorded 10.5 per cent compared to 6.3 per cent in the corresponding period. On the export front too, the growthrates in the last three months have turned positive.

But more than export and industrial growth data, it is the prediction of institutions like the Asian Development Bank which has helped revive expectations in the market. The ADB sees a 6 per cent GDP growth in the current year, stating that there is a stronger potential for recovery. The Centre for Monitoring Indian Economy sees a 6 per cent GDP growth and a 6 per cent growth in industry, while exports are projected to grow by around 5 to 7 per cent.

Investsmart India vice-president G Vijay Kumar is sure of a long-term turnaround. But the spurt in prices of cyclical stocks is due to replacement demand. Sectors such as tractors and two wheelers are constantly witnessing growing demand. Both these sectors have registered a demand of over 25 per cent.

Kotak Mahindra AMC associate vice-president K Ranjeet strikes a note of caution. "Investments in these stocks should be made carefully. Commodity stocks are characterised by capacity utilisations andphysical limitations." For example, GACL and Hindalco are today operating at their full capacity. If Hindalco, at around 2 lakh tonnes per annum, has to grow beyond a certain point they have to set up greenfield projects. Hindalco is putting up a smelter with an upfront investment of around Rs 2,000 crore and to get returns from this project the company has to wait for two years, he points out.

PPFAS chairman Parag Parikh does not expect a turnaround in cyclical industry because "in the presence of a care-taker government all important economic decision making would come to a stand still."

However, a fund manager sees value in cyclical stocks: "Recently, we have entered into automobile, auto ancillary and petrochemical stocks and this is a good time to enter these stocks."

Prudential ICICI AMC fund Shahzad Madon manager feels that this is a good time to enter cyclical stocks citing the improvement in investor confidence worldwide and the recovery in Asian markets.